Britannia Radio

BBC Radio 4 World at One  13.10.08

Prof. Tim Congdon

INTERVIEWER: ... I asked him [previous interviewee] if  he thought  
the government was doing the right thing (partial nationalisation of  
the banks).

Tim Congdon: No, it's doing quite the wrong thing. It's totally  
ignoring shareholders' interests. The way this should have been done  
was by a lender of last resort facility from the Bank of England.  
Alternatively, the money could have come from the States. And it  
could have been done through these preferred bonds on a high rate of  
interest but not at a rate of interest that destroys the businesses.  
The way the government's going about it is they're effectively  
stealing from the shareholders. British banks won’t like this and I'm  
afraid the long run result will be to destroy the competitiveness of  
Britain's most important industries and one where it's been a world  
leader in the last twenty or thirty years.

INT: Stealing from shareholders is a very strong way of putting it.  
If the banks are recapitalised, put on a firmer footing, in the end  
won't shareholders benefit?

Tim Congdon: No, because they have to share the equity with the  
government. The Royal Bank of Scotland has £60 billion of  
shareholders' money at the moment. Because of the way the  
government's behaved, that is valued by the stock market at a much  
lower price. If the government comes in at that lower price, then the  
existing shareholders lose a big chunk of the bank that they own and  
as a result they're worse off. That’s the big problem with this. And  
we're going to find in the next few days that the banks will be  
making a noise and they will warn the government.

INT: But if the bank in which you've invested has behaved recklessly  
and ended up in this position in the first place, isn't that a danger  
that you have to take?

Tim Congdon: (agitated) British banks have not behaved recklessly.  
This is an outrageous slur on the bank industry. British banks have  
got to comply with regulations. They are inspected all the time by  
the Financial Services Authority. They're audited and watched and  
they are not reckless. Can I just say that, an example of this, the  
allegation that Northern Rock was reckless. Northern Rock has repaid  
more than half of the loan from the Bank of England already. There  
was nothing wrong with Northern Rock. There's nothing wrong with the  
Royal Bank of Scotland. The problem is the government and the Bank of  
England.

INT: Isn't the problem that the banks got into debt. They took on so- 
called toxic assets. And in other words actually were in a very  
dangerous position which was why they're having to be bailed out now.

Tim Congdon: (very agitated) Look, banks are always in debt. That's  
what their business is. They borrow money in order to lend money.

INT: But it's a question of the ratio isn't it. And what people are  
saying about the banking industry now is that it's too highly  
leveraged. It went too far.

Tim Congdon: They're subject to controls and they have met those  
controls. They have done what they were supposed to do. They're  
watched all the time by the regulators and the Bank of England, and  
indeed the Treasury and the government. The way in which this  
government is behaving will ruin one of our leading industries. The  
City of London will move elsewhere.

(In neither instance did the interviewers follow up, and nor were the  
issues raised discussed with other commentators or on other bulletins).

[Transcript courtesy of EUReferendum Blog)